RENMIN TIANLI GROUP, INC. - FORM 10-K/A

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EX-31.1 - RENMIN TIANLI GROUP, INC.	e611119_ex31-1.htm
EX-32.2 - RENMIN TIANLI GROUP, INC.	e611119_ex32-2.htm
EX-32.1 - RENMIN TIANLI GROUP, INC.	e611119_ex32-1.htm
EX-31.2 - RENMIN TIANLI GROUP, INC.	e611119_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSIONite

WASHINGTON, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION FROM _______ TO ________.

COMMISSION FILE NUMBER: 001-34799

TIANLI AGRITECH, INC.

(Exact name of registrant as specified in its charter)

British Virgin Islands	N/A
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

Suite F, 23rd Floor, Building B, Jiangjing Mansion

228 Yanjiang Ave., Jiangan District, Wuhan City

Hubei Province, China 430010

(Address of principal executive offices) (Zip code)

Issuer's telephone number, including area code: (+86) 27 8274 0726

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common shares, $0.001 par value	Nasdaq Global Market

Securities registered pursuant to section 12(g) of the Act:

(Title of class): None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of June 30, 2012, the aggregate market value of the outstanding shares of the registrant's common stock held by non-affiliates (excluding shares held by directors, officers and others holding more than 5% of the outstanding shares of the class) was $8,572,850, based upon a closing price of $1.21 per common share on June 29, 2012. At March 9, 2013, the registrant had outstanding 11,194,000 common shares.

Documents incorporated by reference: Not Applicable.

Explanatory Note

This amendment is being filed to amend the following items in response to a letter of comment from the staff of the Division of Corporation Finance: Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations); Item 8 (Financial Statements and Supplementary Data); Item 9A (Controls and Procedures); and Item 15 (Exhibits and Financial Statement Schedules).

Form 10-K/A

Tianli Agritech, Inc.

Index

		Page
PART II	FINANCIAL INFORMATION
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation	3
	Item 8. Financial Statements and Supplementary Data	14
	Item 9A. Controls and Procedures	14
PART IV
	Item 15. Exhibits and Financial Statement Schedules	17

Forward-Looking Statements

We have made statements in this report that constitute forward-looking statements, such as statements about our plans, objectives, expectations, assumptions or future events. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “we believe,” “we intend,” “may,” “should,” “will,” “could” and similar expressions denoting uncertainty or an action that may, will or is expected to occur in the future. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements.

The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

Except where the context otherwise requires and for purposes of this report only:

the terms “we,” “us,” “our company,” and “our” collectively refer to Tianli Agritech, Inc. (“Tianli” when referring solely to our British Virgin Islands company); our wholly-owned subsidiary, HC Shengyuan Limited, a Hong Kong limited liability company (“HCS”); HCS’ wholly-owned subsidiary, Wuhan Fengxin Agricultural Science and Technology Development Co., Ltd., a Chinese limited liability company (“WFOE”); our affiliated entity, Wuhan Fengze Agricultural Science and Technology Development Co., Ltd., a Chinese limited liability company (“Fengze”), which WFOE controls by virtue of contractual arrangements; and our affiliated entity, Hubei Tianzhili Breeder Hog Co., Ltd., a Chinese limited liability company (“Tianzhili”).

“shares” and “common shares” refer to our common shares, $0.001 par value per share;

“China” and “PRC” refer to the People’s Republic of China, and for the purpose of this report only, excluding Taiwan, Hong Kong and Macau; and

all references to “RMB,” “Renminbi” and “¥” are to the legal currency of China and all references to “USD,” “U.S. dollars,” “dollars,” and “$” are to the legal currency of the United States.

Unless otherwise stated, we have translated balance sheet amounts with the exception of equity at December 31, 2012 at RMB 6.3011 to $1.00 as compared to RMB 6.3545 to $1.00 at December 31, 2011. The equity accounts are stated at their historical rate. The average translation rates applied to income statement accounts for the year ended December 31, 2012 and the year ended December 31, 2011 were RMB 6.3034 and RMB 6.4554, respectively. We make no representation that the RMB or U.S. dollar amounts referred to in this report could have been or could be converted into U.S. dollars or RMB, as the case may be, at any particular rate or at all. Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.

PART II

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

The following discussion and analysis of our Company’s financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements.

Overview

Our Company is in the business of breeding, raising, and selling hogs in the Wuhan City area of the PRC, and from September 2011 to June 2012 was party to agreements that provided it with the ability to sell finished pork products through selected retail channels. We control Fengze pursuant to a series of control agreements between Fengze and our wholly owned subsidiary, WFOE. Fengze mainly produces and sells hogs for breeding stock and slaughter. As of December 31, 2012, Fengze owned and operated ten commercial farms in the Wuhan City area and one commercial farm in Enshi Autonomous Prefecture, Hubei Province. Fengze’s tenth farm was acquired in December 2010 and its eleventh farm was acquired in May 2011. Once they achieve full production, each of these farms will have an annual operating capacity of 20,000 hogs. In addition, Fengzi owns a majority of Tianzhili which operates in Enshi Autonomous Prefecture (“Enshi”). Tianzhili mainly raises and sell black hogs in conjunction with local hog farmers in Enshi. In addition, it will distribute black hogs to pork wholesalers in Wuhan, Beijing, and Tianjin.

In the last two years, our business has grown rapidly as a result of the expansion of our annual capacity levels as discussed above, and China’s strengthening economy, and the resulting strong demand for our hogs, particularly for our breeder hogs.

In an effort to significantly increase the scale of our operations, we recently concluded a series of agreements (the “Exclusivity Agreements”) with the Animal Husbandry and Veterinary Bureau of Enshi Tujia and Miao Autonomous Prefecture of Hubei Province, the Animal Husbandry and Veterinary Bureau of Xianfeng County of Hubei Province, the Xuwang Hog Farming Professional Cooperatives of Xianfeng County, and the Qiming Hog Farming Professional Cooperatives of Xianfeng County, whereby we were granted the exclusive right to breed and sell Enshi black hogs in Enshi Autonomous Prefecture in Hubei Province. Enshi black hog is one of the oldest hog species with a lineage that can be traced back to the year 1611. Enshi black hog originated in the Enshi Tujia and Miao Autonomous Prefecture in Hubei Province and the meat of the Enshi Black Hog is considered by many Chinese to be superior to that of many other breeds and for that reason, black hog meat generally sells for more than standard hog meat. The Company estimates that the price of Enshi black hog meat is currently approximately 15% above the price of typical lean pork meat. The agreements also call for the joint development, funding and operation of local cooperatives in Enshi Autonomous Prefecture, Hubei Province whereby the Company, the relevant governmental agencies and the cooperatives will assist participating farmers to breed and raise Enshi black hogs which will be purchased by the Company for resale as meat hogs or retained or sold as breeders at the Company’s discretion. By entering into this arrangement, we hope to be able to develop a widely recognized brand of black hog meat and to profit from the sale of black hogs grown by independent farmers as well as those grown by us. If successfully implemented, this program should allow us to profit from the black hogs grown by the participating farmers who will be obligated to purchase feed, vaccines and other supplies from us and then sell us their hogs at a price which is comparable to the costs at which we currently grow our own hogs.

The Exclusivity Agreements envision that we will work with the Animal Husbandry and Veterinary Bureaus of Xianfeng County and Enshi Tujia and Miao Autonomous Prefecture, respectively, to develop a regional breeding and distribution program whereby local farmers will be trained and supervised by us, the relevant governmental agencies and their cooperatives in raising a breed of black hogs genetically developed and monitored by us with the approval of the local government agency. We will work with all of the farmers participating in the program to ensure that the quality of the breed is maintained and to develop standardized programs for the feed and care of the hogs. As part of this effort, we will develop an appropriate feed mix, which the farmers will purchase from us. To be eligible to participate in the program farmers will need to be able to maintain no less than 6 sows or produce at least 100 black hogs per year. By the end of 2012 we had funded and completed the construction of 645 farms for local farmers and we envision that we will fund and construct up to an additional 120 farms in the first quarter of 2013. The goal is to achieve a production capacity ranging from 30,000 hogs to 50,000 hogs during 2013 with a long run target of an annual capacity of 1 million hogs. Achievement of any of the program’s goals and the need for financing are dependent upon the participation, cooperation and skills of local farmers which are currently being evaluated. The agreements are generally for a period of ten years.

As noted above, we should benefit from this program in a number of ways, principally by reselling the black hogs purchased from the participating farmers and by providing the farmers with necessary supplies. The price at which black hog meat sells is currently 15% above the price of white hog meat. We believe this will provide sufficient margin to us even if the relative prices change.

We believe that because this program offers many advantages to the participating farmers and the local governments, the number of farmers wanting to join the program will be significant ensuring the success of the program and will result in a significant increase in the volume of pork we sell. Enshi Autonomous prefecture is a relatively poor area of China. By joining this program participating farmers will benefit from our expertise in breeding and caring for hogs, and will be producing a breed which is generally considered superior to the meat of standard hogs. To develop our strain of black hog we will apply internationally recognized advanced molecular breeding strategies. The project will be supported by the Animal Husbandry Research Institution of Hubei, which has significant experience in hog breeding research. Moreover, the Enshi Autonomous Prefecture government has determined to emphasize hog farming in China’s current five-year development plan (2011-2015), which should cause it to cooperate with us to make the project a success. Significantly, the local governments have agreed that we are the only company with which it will undertake a project such as this.

In addition to the advantages of this program, we believe that some of the risks typical to hog farming will be minimized. For example, because individual farms will be relatively small and decentralized, and under strict supervision to employ disease control methods we determine appropriate, the risk of disease should be lower than on traditional farms, Further, if a farm were to develop a problem, it should not spread since the farms are decentralized in the Prefecture’s mountainous region. In addition, because of the emphasis being placed on this project by the local government, we anticipate a high level of cooperation from the farmers who are being given the opportunity to profit from what is otherwise communal land.

We have agreed to contribute to the financial needs of the project in various ways and the local governments have agreed to provide us and the participating farmers with various subsidies, incentives and insurance. The precise demands upon us will depend upon the rate at which the project grows which, in turn, will be impacted by the availability of financing that may be necessary to modernize and support the participating farmers. Given the long term of this project, it is likely that there will be continued negotiation of various issues that arise during the life of the project.

Principal Factors Affecting our Results of Operations

Revenues and Incomes

We derive our revenues from the sale of hogs to other hog farms for breeding purposes, to brokers who sell our hogs to other hog farms for breeding purposes and to slaughterhouses, and directly to slaughterhouses. We breed and raise hogs that are eventually sold as either breeder or market hogs which will be sold to slaughter houses for conversion into pork products. Some of the hogs are bred and raised for the purpose of sale as market hogs, while others become market hogs because customers do not select them as breeder hogs. Also very few boars are required for breeding purposes, as compared with sows. As approximately half of a litter will be males, most of these males will be sold as market hogs. The average sales price for a breeder is significantly higher than that of a market hog, and since breeder hogs are sold at a younger age than market hogs and usually weigh about 110 pounds at the date they are sold, as compared to the average weight of about 220 pounds for a market hog, the direct cost of feeding and otherwise raising a breeder hog is less than a market hog. Thus the gross margin for breeder hogs is substantially higher than that of a market hog. Consequently, the Company has focused its operations so that a significant portion of its sales are represented by breeder hogs, and its success in so doing has been a major contribution to its operating profit.

We also receive some subsidies from the government for operating our farms. Some of these subsidies are non-recurring, such as the payment we receive when we reach specified annual production capacities, or for the acquisition of certain operating equipment. Others, such as subsidies for breeder hog insurance, are ongoing so long as we qualify. Of course, there is no assurance the government will continue any of its policies for granting subsidies.

Commencing in the third quarter of 2011, we began to derive revenue from retail sales of pork products through a collaborative arrangement with An Puluo. In August 2011, Fengze and An Puluo signed a collaborative agreement whereby we received the right to sell processed pork products at retail under the brand name “Tianli An Puluo” in greater Wuhan City. This collaborative agreement was canceled as of June 15, 2012.

Factors Affecting Revenues

The following factors, among others, affect the revenues and profitability that we derive from our operations. For other factors affecting our revenues, see “Risk Factors—Risks Related to Our Business,” included elsewhere in this Form 10-K

Consumer demand for pork products. Consumer demand for pork products is closely linked to the performance of the general Chinese economy and is sensitive to business and personal discretionary spending levels.

Declines in consumer demand may occur as a result of adverse general economic conditions. Lower consumer confidence and changes in consumer preferences for pork as compared with other meats can lower the revenues and profitability of our operations. As a result, changes in consumer demand and general business cycles can subject our revenues to volatility.

Revenues resulting from the sale of breeder hogs. A significant amount of our revenues and operating margin result from the sales of young breeder hogs to other hog farmers. Because these breeder hogs command a price significantly higher than market hogs, and are sold at a younger age, thus incurring less feed and related finishing expenses, the profitability of the sale of a breeder hog is higher than that for the sale of a market hog. A significant reduction in the proportion of our sales that are breeder hogs would very likely significantly reduce our overall profit margin.

Government action in our industry. Because pork occupies such a central role in the Chinese diet, the government has occasionally taken action to prevent the price of pork from dropping below specified levels and has provided subsidies to companies engaged in hog farming. We benefit from this protection, and we could be harmed if the government terminated such practices. In addition, the government has taken actions to prevent the spread of diseases among livestock, including mandatory culls of affected animals. These actions have occasionally resulted in relative shortages, which tend to lead to higher prices for healthy animals, and could result in a reduction of our stock, thus reducing revenues and profit. Likewise it is possible that the government could implement some form of price controls that could adversely impact our ability to price our products so as to recover increases in costs such as feed.

Competition and subsidies. While the hog farming industry in Hubei province and the Wuhan City area includes a large number of farms, many of those farms are smaller farms that sell relatively few hogs per year. We believe the incentives being given to farms that reach specified annual production capacities are likely to result in a consolidation of the industry. Our ability to increase our production capacity and thus to qualify for these incentives for our operations allows us to receive non-recurrent benefits from these subsidies, as well as to benefit from increased economies of scale in our operations.

Expansion. We believe we must continue to expand our production capacity to attain additional market share. Since 2006, we have acquired or built eleven hog farms. If we fail to make acquisitions or expand our production capacity, our revenue growth could slow.

Epidemic outbreaks. The outbreak of animal diseases could adversely affect our revenues. An occurrence of serious animal diseases, such as foot-and-mouth disease, or any outbreak of other epidemics in the PRC affecting animals or humans might result in material disruptions to our sales.

Taxes. Currently the Company believes that the provisions of the PRC’s Enterprise Income Tax law provide it with an exemption from PRC income taxes, VAT taxes and business service taxes. If this understanding is incorrect or if the law or interpretations of the law change, this could significantly impact the Company’s net operating results.

Contractual arrangements with Fengze. We conduct substantially all of our operations, and generate substantially all of our revenues, through contractual arrangements with Fengze that provide us with effective control over Fengze. We depend on Fengze to hold and maintain contracts with our customers. Fengze owns substantially all of our intellectual property, facilities and other assets relating to the operation of our business, and employs the personnel for substantially all of our business. Neither Tianli, nor HCS nor WFOE has any ownership interest in Fengze. Although WFOE’s contractual arrangements with Fengze are valid, binding and enforceable under current PRC laws and regulations, these contractual arrangements may not be as effective in providing the Company with control over Fengze as direct ownership of Fengze would.

Costs and Expenses

We primarily incur the following costs and expenses:

Costs of goods sold. In raising hogs for sale, we incur a number of costs that represent the costs of goods sold. We must purchase hog feed, premix components, medicines and other supplies to grow our hogs and keep them healthy. In addition to these items, cost of goods sold includes expenses such as the amortization of the sows (referred to as biological assets), farm employee wages, water, electricity, equipment depreciation expense, maintenance expense, quarantine expense, equipment costs, insurance expense, and sewage charges.

General and administrative expenses. General and administrative expenses consist primarily of compensation expense for our corporate staff, professional fees (including consulting, audit and legal fees), communication costs, research and development costs, gasoline, welfare expenses, education expenses, travel and business hospitality expenses, land rent, and other office administrative and related expenses.

Sales and marketing costs. Sales and marketing costs include salaries, wages, and promotion expenses.

Factors Affecting Expenses

Supplies and commodity prices. The largest component of our expenses relates to the price of materials required to breed and raise hogs for sale. Specifically, while we ordinarily breed our own hogs, we periodically purchase breeding stock to continue to improve our genetic breeding pool. Similarly, the prices of corn and soybean husks in China are important to our operations, because corn and soybean husks are the primary component of the hogs’ diet. To the extent the prices of these materials vary, our cost of goods will fluctuate, and we may not be able to recover these higher costs by higher prices for our products. For this reason, we may be affected by droughts, floods, crop diseases and the like, which tend to make feed scarcer and thus more expensive.

Transition to public company. As we are now a public company, our administrative costs have increased materially, including audit, legal, travel to the United States, investor relations and advisor costs as well as the need to comply with detailed reporting requirements.

Number of customers. The more customers we have, the related selling expenses, travel expenses and other similar costs will likely increase. At present, we sell substantially all of our hogs to a relatively small number of customers. We believe this concentration of customers has allowed us to focus our marketing and selling efforts.

Number of farms we operate. We have acquired or constructed a number of hog farms in the last several years. As we operate more farms, our administrative expenses tend to increase in dollars terms.

Retail expenses. As we pursue a strategy of providing our branded product to retail outlets, we expect that we will face additional costs such as promotion and advertising expenses to establish our brand image and retail recognition.

In connection with the Enshi Black Hog program described above, we have agreed to incur various costs and contribute various amounts to cover the costs of different aspects of the program. Since 2011, we have signed 7 joint development agreements, generally for periods of 10 years, with 7 local cooperatives in Enshi Autonomous Prefecture, Hubei Province whereby the Company, the relevant governmental agencies, and the cooperatives will assist participating farmers to breed and raise Enshi black hogs which will be purchased by us for resale as meat hogs or retained or sold as breeders at our discretion. Under these agreements, we provide funding to local independent farmers to construct small-scale hog rearing facilities on which the farmers will grow the black hogs for sale to us. Pursuant to these joint development agreements, title to these small-scale hog rearing facilities belongs to us and the local cooperatives (and the individual farmers) have the right to use them. As of December 31, 2012, we have purchased $8.92 million of hog rearing facilities and equipment that has been completed and is operational and included in plant and equipment. We also have purchased $1.62 million of hog rearing facilities and equipment that has not been completed and is not operational and is included in construction in progress as of December 31, 2012. These projects are expected to be completed by the first quarter of 2013.

Comparison of the Results of Operations for the Years Ended December 31, 2012 and 2011

All amounts, other than percentages, in U.S. dollars

	For Year Ended December 31,									Percentage of
	2012			2011			Net Change			Change
Sales	$	26,529,423		$	28,638,431		$	(2,109,008	)		(7.36	%)
Cost of goods sold		23,073,991			18,034,434			5,039,557			27.94	%
Gross profit		3,455,432			10,603,997			(7,148,565	)		(67.41	%)
Selling, general and administrative expenses		3,421,178			2,551,615			869,563			34.08	%
Income from operations		34,254			8,052,382			(8,018,128	)		(99.57	%)
Interest expense, net		(461,299	)		(181,218	)		(280,081	)		154.55	%
Subsidy income		218,605			233,928			(15,323	)		(6.55	%)
Other expense		(43,534	)		(210,064	)		166,530			(79.28	%)
Net other expense		(286,228	)		(157,354	)		(128,874	)		81.90	%
Income (loss) before income taxes		(251,974	)		7,895,028			(8,147,002	)		(103.19	%)
Income taxes		-			-			-			n/m
Net income (loss) from continuing operations		(251,974	)		7,895,028			(8,147,002	)		(103.19	%)
Gain from operations of discontinued component, net of taxes		39,179			201,106			(161,927	)		(80.52	%)
Net income (loss)	$	(212,795	)	$	8,096,134		$	(8,308,929	)		(102.63	%)

Revenues. Our revenues decreased by $2,109,008 or approximately 7.36% in the year ended December 31, 2012 as compared to the year ended December 31, 2011. This decrease was primarily the result of lower selling prices for breeder hogs and market hogs over the course of 2012. We sold 24% more market hogs in 2012 at a unit price 22% below unit prices in 2011, resulting in a 3% decline in our market hog revenues. With regard to our breeder hogs, we sold 10% less breeders during 2012 at a unit price 7% less than in 2011, causing a 17% reduction in our breeder hog revenues.

Our revenue from sales of market hogs was adversely impacted by decreased market prices caused by an oversupply of pork and China’s efforts to control prices. After experiencing a price peak in the pork retail market in 2011, the pork retail price in China has been steadily decreasing. Expanded hog production since the price peak in 2011 has resulted in an increased supply of hogs. Additionally, the government of China allowed pork to be imported in greater quantities with lower tariffs to reduce the pressure on the price of pork. Our sales of breeder hogs decreased in part because the cost of feeding hogs kept increasing over 2012 which caused hog farmers to reduce their purchases of breeder hogs.

The tables below illustrate the sales of breeder hogs and market hogs for the years ended December 31, 2012 and 2011.

Sales by Products

	For the Year Ended December 31,
	2012						2011
	No. of Hogs Sold		Average Price/Hog		Sales		No. of Hogs Sold		Average Price/Hog		Sales
Breeder Hogs		26,690	$	293	$	7,821,393		29,654	$	316	$	9,374,312
Market Hogs		89,006	$	210		18,708,030		71,946	$	268		19,264,119
Total		115,696	$	229	$	26,529,423		101,600	$	282	$	28,638,431

Profit Margins. Our gross profit margin decreased to 13% in the year 2012 from 37% in 2011. The combination of increased feed costs and lower prices for market hogs and breeder hogs as a result of competition from increased herds in China and imported hogs caused the decrease in our gross profit margin.

The gross margins for breeder hogs were 31% and 47% in the years 2012 and 2011, respectively, and the gross margins for market hogs were 5% and 32% in the years 2012 and 2011, respectively. The decrease in the gross margins for breeder hogs and market hogs is mainly due to lower pork prices for the reasons described above and soaring feed costs in China. Comparing the operating results of 2012 and 2011, the average selling price of our hogs was reduced from $282 to $229, a 19% reduction in hog prices. Additionally, our cost of goods sold for market hogs increased 35% because of a surge in the cost of hog feeds.

Expenses. Selling, general and administrative expenses increased by $869,563 in the year ended December 31, 2012 as compared to the same period in 2011. The increase was primarily from the non-cash expense of $1,130,000 resulting from the issuance of 1,000,000 shares to our marketing consultants and employees related to promotion of black hog sales.

Net Other Expense. Net other expense increased from $157,354 in the year of 2011 to $286,228 in the same period of 2012, an increase of $128,874, which was primarily due to an increase of $280,081 in interest expense.

Income Taxes. As an agricultural business, the Company is exempt from the Chinese income tax and our hog farming operations are exempt from VAT.

Net Income (Loss) from Continuing Operations. Our net income (loss) from continuing operations for the year ended December 31, 2012 and 2011 was $(251,974) and $7,895,028, respectively. The material decrease in net income (loss) is primarily the result of the $2,109,008 decrease in our revenues, a $5,039,557 increase in our cost of goods sold, and the non-cash expense of $1,130,000 resulting from the issuance of 1,000,000 shares to our marketing consultants and employees.

Liquidity and Capital Resources

The following discussion regarding liquidity and capital resources reflects our position as of December 31, 2012.

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. At December 31, 2012 our working capital was $8,984,403 as compared to $12,007,048 at December 31, 2011, reflecting the investment in rearing facilities for our black hog program of $6,977,751 during 2012, the collection of $1,110,512 previously loaned to An Puluo and the proceeds from Xiamen Reijin Equity Investment Fund (“Reijin Equity”) of $1,057,636 in exchange for a 40% interest in Tianzhili which has been reinvested in black hog rearing facilities construction.

The cash and cash equivalent balance of $7,477,205 at December 31, 2012, compared favorably to the balance of $6,507,742 at December 31, 2011. The components of this increase in cash of $969,463 are discussed below.

Consolidated Statement of Cash Flows

	Year Ended December 31,
	2012			2011
Net cash provided by operating activities	$	5,608,121		$	7,580,912
Net cash used in investing activities		(7,331,303	)		(14,249,355	)
Net cash provided by financing activities		2,604,420			4,100,890
Exchange rate effect on cash		88,225			1,091,502
Net cash (outflow) inflow	$	969,463		$	(1,476,051	)

Cash Provided by Operating Activities

Net cash provided by operating activities in the year ended December 31, 2012 totaled $5,608,121. Cash flow pertaining to operating activities reflected the Company’s net loss from continuing operations for 2012 of ($251,974), offset by depreciation and amortization of $3,263,163, stock-based expense of $1,188,373, and an increase in other payables of $2,287,254. These favorable factors were partially offset by increases in inventories of $573,473, advances to suppliers of $189,025, and prepaid expenses of $366,450.

Net cash provided by operating activities in the year ended December 31, 2011 totaled $7,580,912. Cash from operating activities in 2011 mainly consisted of our net income from continuing operations for the year of $7,895,028, supplemented by non-cash expenses of depreciation and amortization of $2,238,218, amortization of prepaid rental expense of $199,325 and stock-based compensation of $255,454, and a decrease in advances to suppliers of $1,009,718, and an increase in accounts payable and other payables of $621,648, and partially offset by an increase in accounts receivable of $124,883 and an increase in inventories of $4,507,283. The increase in inventories was in part due to the increase in the number of hogs resident in the farms and a decision to increase our supplies of feed to ensure availability and to purchase before further increases in cost.

Cash Used in Investing Activities

Net cash used in investing activities for the year ended December 31, 2012 totaled $7,331,303. This included additions to construction in progress of $6,977,751 for establishing hog rearing facilities for smaller farmers participating in our black hog program, $1,760,034 for additions to our breeder stock and $213,872 for purchase of new equipment. During the year 2012, we also collected $1,110,512 from An Puluo and proceeds of $509,842 from the disposal of construction in progress.

Net cash used in investing activities for 2011 totaled $14,249,355. This included an advance of $1,084,363 to An Puluo, additions to construction in progress of $3,077,452 for establishing and upgrading hog farms, including hog farms for small farmers in the black hog program, $4,605,866 of plant and equipment investments, $1,923,470 for additions to our breeder stock, $785,223 for the purchase of intangible assets, and long-term prepaid rents of $1,831,987, mainly from the purchase of assets of our eleventh hog farm.

Cash Provided by Financing Activities

For the year ended December 31, 2012, net cash provided by financing activities was $2,604,420. The activity was comprised of a repayment of short-term loans of $4,759,336, proceeds from short-term loans of $7,099,343, and proceeds from XMRJ LLP (“XMRJ”), a limited partner enterprise formed under Chinese law that engages in equity investments in China, of $1,057,636 in exchange for a 40% interest of Tianzhili.

During 2011, the Company obtained $4,647,272 in proceeds from new short-term bank loans which are due by May 31, 2012 and November 22, 2012.

Commitments for Capital Expenditures

We have been actively pursuing upgrading our existing farms and building up hog rearing facilities for our Black Hog Program participants.

Our participation in the Enshi Black Hog program will require us to incur various costs and contribute various amounts to cover the costs of different aspects of the program as more fully described above. As of December 31, 2012, we had provided funding totaling $10.54 million to local independent farmers to construct small-scale hog farms in which the farmers will raise black hogs for sale to the Company. We expect further funding for this program may be required later this year, and we believe that such funds will be available out of the cash flow generated by operations.

To enable us to more rapidly expand our black hog program, we entered into an investment agreement with XMRJ, a limited partner enterprise formed under Chinese law that engages in equity investments in China, and amendments thereto, whereby XMRJ has agreed to contribute RMB10 million or approximately $1,600,000 to the capital of Tianzhili and make an interest free loan of RMB 5,000,000 or approximately $800,000 to Tianzhili. To date we have received RMB 6,666,700 or approximately $1,050,000 of the agreed upon capital contribution. The balance, RMB 3,333,300 or approximately $550,000 is to be advanced no later than May 5th, 2013. The $800,000 interest free loan is to be made in the second half of 2013 and remain outstanding for so long as XMRJ holds its interest in Tianzhili.

Off Balance Sheet Items

Under SEC regulations, we are required to disclose off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which we have:

•

any obligation under certain guarantee contracts,

•

any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets,

•

any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our stock and classified in shareholder equity in our statement of financial position, and

•

any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our estimates, including those related to bad debts, inventories, recovery of long-lived assets, income taxes, and the valuation of equity transactions. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in Note 2 to our consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial statements and our management’s discussion and analysis.

Variable Interest Entities

Pursuant to ASC Topic 810 and related subtopics related to the consolidation of variable interest entities, we are required to include in our consolidated financial statements the financial statements of variable interest entities (“VIEs”). The accounting standards require a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. VIEs are those entities in which we, through contractual arrangements, bear the risk of, and enjoy the rewards normally associated with ownership of the entity, and therefore we are the primary beneficiary of the entity.

Wuhan Fengze Agricultural Science and Technology Development Co., Ltd. and its subsidiaries (“Fengze”) are considered the VIEs of the Company and we are the primary beneficiary. On December 1, 2009, we entered into agreements with Fengze and all of the stockholders of Fengze pursuant to which we shall receive 100% of Fengze’s net income. In accordance with these agreements, Fengze shall pay consulting fees equal to 100% of its net income to our wholly-owned subsidiary, Wuhan Fengxing Agricultural Science and Technology Development Co., Ltd. (“Fengxing”), and Fengxing shall supply the technology and administrative services needed to service Fengze.

The accounts of Fengze are consolidated in the accompanying financial statements. As VIEs, Fengze’s sales are included in our total sales, their income from operations is consolidated with ours, and our net income includes all of Fengze’s net income, and their assets and liabilities are included in our consolidated balance sheets. Because of the contractual arrangements, we have pecuniary interest in Fengze that require consolidation of Fengze’s financial statements with our financial statements.

Accounts Receivable

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We periodically review our accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

As a basis for estimating the likelihood of collection has been established, we consider a number of factors when determining reserves for uncollectable accounts. We believe that we use a reasonably reliable methodology to estimate the collectability of our accounts receivable. We review our allowances for doubtful accounts on at least a quarterly basis. We also consider whether the historical economic conditions are comparable to current economic conditions. If the financial condition of our customers or other parties that we have business relations with were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventories

Inventories, consisting principally of our hogs held for sale, are stated at the lower of cost, as determined by the weighted-average method, or market. We compare the cost of inventories with the market value, and allowance is made for writing down the inventories to their market value if that is lower. Costs of raised animals include proportionate costs of breeding, including amortization of the breeding herd or biological assets, plus the costs of feed and other maintenance. The price of hogs could fluctuate upward or downward. If prices were to decrease below the amounts we use in determining the carrying value of our inventory, any profit we might achieve on the sale of our inventories would be less than anticipated. If inventory costs exceed expected market value due to obsolescence or quantities in excess of expected demand, we will record additional reserves for the difference between the cost and the market value. These reserves are recorded based on estimates. We review inventory quantities on hand and on order and record, on a quarterly basis, a provision for excess and obsolete inventory, if necessary. If the results of the review determine that a write-down is necessary, we recognize a loss in the period in which the loss is identified, whether or not the inventory is retained. Our inventory reserves establish a new cost basis for inventory and are not reversed until we sell or dispose of the related inventory. Such provisions are established based on historical usage, adjusted for known changes in demands for such products, or the estimated forecast of product demand and production requirements.

Plant and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:

Estimated useful lives of the Company’s assets are as follows:

		Useful Life
Buildings		20 years
Vehicles		5 years
Office equipment		5 years
Production equipment		5-10 years

The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in disposition.

We examine the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. We recognize an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value

Construction in Progress

Construction in progress consists of amounts expended for building construction of new breeding and animal rearing facilities. Once construction of a building is completed and the facilities are approved for adequate breeding and animal rearing activity, and have commenced of animal rearing activities, the construction in progress assets are categorized as buildings and production equipment and accounted for in plant and equipment, whereupon they are depreciated over their estimated useful lives.

Included in construction in progress are new breeding and animal rearing facilities under construction and machinery pending installation and includes the costs of construction, machinery and equipment, and any interest charges arising from borrowings used to finance these assets during the period of construction or installation. No provision for depreciation is made on construction-in-progress until such time as the relevant assets are completed and ready for their intended use.

Biological Assets

Biological assets consist primarily of hogs purchased or selected from the Company’s own production for breeding and farrowing. The costs to purchase and cultivate breeding hogs and the expenditures related to labor and materials to feed breeding hogs until they become commercially productive and breedable are capitalized. When breeding hogs are entered into breeding and farrowing, amortization of the costs incurred until they became commercially productive commences. The estimated production life for breeding hogs is three years, and the costs are amortized to a residual value, currently $76 (RMB 500). After the breeding hogs have completed their production life of breeding, these breeding hogs are then transferred into inventory as the vast majority of these breeding hogs will then be sold for meat processing. Expenses incurred maintaining breeding hogs during gestation until piglets are weaned are capitalized into inventory and included in Work in process—biological assets, a component of inventories. If these breeding hogs produce piglets which are deemed appropriate for internal breeding purposes, the gestation and raising costs until weaned for these piglets are then allocated into biological assets.

Amortized expenses pertaining to biological assets are included in inventory costs for those piglets to be sold and ultimately become a component of cost of goods sold. Similar to other assets, the failure of our biological assets to be serviceable over the entirety of their anticipated useful lives or to be sold at their anticipated residual value, will negatively impact our operating results.

Land Use Rights

There is no private ownership of land in the PRC. All land in the PRC is owned by the government and cannot be sold to any individual or company. The government grants a land use right that permits the holder of the land use right to use the land for a specified period. Our land use rights were granted with a term of 50 years. Any transfer of the land use right requires government approval. We have recorded as an intangible asset the costs paid to acquire a land use right. The land use rights are amortized on the straight-line method over the land use right terms.

Non-controlling Interest

Non-controlling interests in our subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.

Revenue Recognition

We generates revenue principally from the business of breeding, raising, and selling hogs for use in meat production and breeding, and, to a small degree, as processed pork. Revenues generated from the sales of breeding and meat hogs and processed pork are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and collectability is reasonably assured. Cash payment, is usually received by the Company at the time the hogs are sold. Sold hogs and processed pork are not returnable and accordingly, no provision has been made for returnable goods.

Currency Exchange Rates

Our functional currency is the U.S. dollar, and the functional currency of our operating subsidiaries and VIE is the RMB. All of our sales are denominated in RMB. As a result, changes in the relative values of U.S. dollars and RMB affect our reported levels of revenues and profitability as the results of our operations are translated into U.S. dollars for reporting purposes. In particular, fluctuations in currency exchange rates could have a significant impact on our financial stability due to a mismatch among various foreign currency-denominated sales and costs. Fluctuations in exchange rates between the U.S. dollar and RMB affect our gross and net profit margins and could result in foreign exchange and operating losses.

Our exposure to foreign exchange risk primarily relates to currency gains or losses resulting from timing differences between signing of sales contracts and settling of these contracts. Furthermore, we translate monetary assets and liabilities denominated in other currencies into RMB, the functional currency of our operating subsidiaries. Our results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in our statement of shareholders’ equity. We have not used any forward contracts, currency options or borrowings to hedge our exposure to foreign currency exchange risk. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign currency losses in the future.

Our financial statements are expressed in U.S. dollars, which is the functional currency of our parent company. The functional currency of our operating subsidiaries and affiliates is RMB. To the extent we hold assets denominated in U.S. dollars, any appreciation of the RMB against the U.S. dollar could result in a charge in our statement of operations and a reduction in the value of our U.S. dollar denominated assets. On the other hand, a decline in the value of RMB against the U.S. dollar could reduce the U.S. dollar equivalent amounts of our financial results.

Stock Based Compensation

Stock based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award. The Accounting Standards Codification also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date.” The expense is recognized over the period of services or the vesting period, whichever is applicable. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date.

Item 8. Financial Statements

The consolidated financial statements of Tianli Agritech, Inc. are presented following Item 15.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, prior to the preparation of our Report on Form 10-K, under the supervision and with the participation of our management, including Hanying Li, our Chief Executive Officer, and Guofu Zhang, then our Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2012 and have concluded that the disclosure controls and procedures are effective to ensure that material information relating to our company is recorded, processed, summarized, and reported in a timely manner.

We received a comment letter from the Securities and Exchange Commission dated June 21, 2013 (the “Comment Letter”), in which the Staff of the Commission directed us to file an Amended Form 10- K for the year ended December 31, 2012, to include a discussion of our critical accounting policies and directed us to the disclosure requirements of FR-72. In the Comment Letter the Staff also noted that the list of exhibits included in the Exhibit Index to our Report on Form 10-K for the year ended December 31, 2012, did not appear to include all of the required exhibits. Further, in the Comment Letter the Staff noted that the opinions of our independent auditors on our financial included as a portion of our Report on Form 10-K were deficient in that they did not include the location at which the opinions were filed as required by the applicable rules. In the Comment Letter the Staff also directed us to re-perform our assessment of internal controls over financial reporting and disclosure controls and procedures as of December 31, 2012, and to consider in such assessment the exclusion from our Management’s Discussion and Analysis of Financial Condition and Results of Operations of the required discussion of Critical Accounting Policies.

In connection with the preparation of this Amendment to our Report on Form 10-K for the year ended December 31, 2012, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we re-evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2012 and have concluded that the disclosure controls and procedures are effective to ensure that material information relating to our company is recorded, processed, summarized, and reported in a timely manner. In coming to this conclusion, we note that although there was no discussion of our critical accounting policies within our Management’s Discussion and Analysis, the substance of the discussion that should have been contained in our Management’s Discussion and Analysis in our initial Report on Form 10-K and which is contained in this Amendment was contained in the Footnotes to our Financial Statements included in our Report on Form 10-K and a reference to the Footnotes was contained in our Management’s Discussion and Analysis. Thus, the substance of the discussion that should have been in the Management’s Discussion and Analysis was timely disclosed to the public.

Management’s Report on Internal Control over Financial Reporting

Section 404 of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company’s internal control over financial reporting and include in this Annual Report on Form 10-K a report on management’s assessment of the effectiveness of our internal control over financial reporting.

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the supervision of our Chief Executive Officer and our Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP, and includes those policies and procedures that:

(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Prior to the preparation of our Report on Form 10-K, management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, management used the framework set forth in the report entitled Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on that evaluation, our Chief Executive Officer and Guofu Zhang, our Chief Financial Officer at the time the assessment was made, concluded that as of December 31, 2012, our internal controls over financial reporting were effective to satisfy the objectives for which they were intended.

Changes in Internal Controls over Financial Reporting.

During the fiscal year ended December 31, 2012, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed during the fiscal year covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

Exhibits.

No.		Description
3(i).1		Amended and Restated Articles of Association of the Registrant (1)
3(ii).1		Amended and Restated Memorandum of Association of the Registrant (1)
4.1		Specimen Share Certificate (2)
4.2		Form of Placement Agent Warrant (included in Exhibit. 10.1) (1)
10.1		Form of Placement Agent Warrant Agreement (1)
10.2		English Translation of Entrusted Management Agreement for Fengze (1)
10.3		English Translation of Shareholder Voting Proxy Agreement for Fengze (1)
10.4		English Translation of Pledge of Equity Interest Agreement for Fengze (1)
10.5		English Translation of Exclusive Option Agreement for Fengze (1)
10.6		Tianli Agritech, Inc. 2012 Share Incentive Plan (3)
10.7		English Translation of Employment Agreement between Registrant and Ms. Hanying Li, Chief Executive Officer of the Registrant (1)
10.8		English Translation of Employment Agreement between Registrant and Mr. Guofu Zhang, Chief Financial Officer of the Registrant (4))
10.9		English Translation of Land Lease Contract – Zhulin (1)
10.10		English Translation of Land Lease Contract – Fengze (1)
10.11		English Translation of Land Lease Contract – Jinmu (1)
10.12		English Translation of Side Agreement Related to Land Lease Contract – Jinmu (1)
10.13		English English Translation of Land Lease Contract – Tianjian (1)
10.14		English Translation of Side Agreement Related to Land Lease Contract – Tianjin (1)
10.15		English Translation of Land Lease Contract – Nanyan (1)
10.16		English Translation of Side Agreement Related to Land Lease Contract – Nanyan (1)
10.17		English Translation of Land Lease Contract – Mingxiang (1)
10.18		English Translation of Side Agreement Related to Land Lease Contract – Mingxiang (1)
10.19		English Translation of Land Lease Contract – Huajian A & B (1)
10.20		English Translation of Side Agreement Related to Land Lease Contract – Huajian A & B (1)
10.21		English Translation of Feed Sale Agreements (1)
10.22		English Translation of Land Use Rights Transfer Agreement – Qingsonggang (1)
10.23		Summary of Terms of Demand Note with Hanying Li (5)
10.24		English translation of Marketing Consulting Agreement for Enshi Black Hogs (North China Area) dated June 28, 2012 (7)
10.25		English translation of Agreement of Contract Termination dated June 15, 2012 (8)
14.1		Code of Business Conduct and Ethics (1)
16.1		Letter of Sherb & Co., LLP to the Commission (9)
16.2		Letter of Crowe Horwath (HK) CPA Limited to the Commission (10)
16.3 21.1		Letter of Sherb & Co., LLP to the Commission (11) Subsidiaries and Affiliate of the Registrant (1)
31.1		Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Exchange Act
31.2		Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Exchange Act
32.1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

___________

	(1)	Incorporated by reference to the Company’s registration statement on Form S-1 (Registration No. 333- 165522) filed on March 17, 2010 (the “Registration Statement’), and declared effective as amended, on June 30, 2010.
	(2)	Incorporated by reference to Amendment No. 4 to the Registration Statement filed on June 30, 2010.
	(3)	Incorporated by reference to exhibit 10.26 to the Registration Statement on Form S-8 filed on June 4, 2012.
	(4)	Incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 10, 2012.
	(5)	Incorporated by reference to Amendment No. 2 to the Registration Statement filed on June 1, 2010.
	(6)	Incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 19, 2012.
	(7)	Incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 10, 2012.
	(8)	Incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 11, 2012.
	(9)	Incorporated by reference to exhibit 16.1 to the Company’s Current Report on Form 8-K filed on June 8, 2011.
	(10)	Incorporated by reference to exhibit 16.1 to the Company’s Current Report on Form 8-K filed on December 30, 2011
	(11)	Incorporated by reference to exhibit 16.1 to the Company’s Current Report on Form 8-K filed on January 25, 2013.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to the report to be signed on its behalf by the undersigned thereunto duly authorized.

	TIANLI AGRITECH, INC.


Dated: July 19, 2013	By:	/s/ Hanying Li
		President and Chief Executive Officer (Principal Executive Officer)

	By:	/s/ Jun Wang
		Jun Wang
		Chief Financial Officer (Principal Financial and Accounting Officer)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Tianli Agritech, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Tianli Agritech, Inc. and Subsidiaries (the “Company”) as of December 31, 2012, and the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows for the year ended December 31, 2012. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2012, and the results of its operations and its cash flows for the year ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

/s/RBSM LLP

RBSM LLP

New York, New York

March 14, 2013

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Tianli Agritech, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Tianli Agritech, Inc. and Subsidiaries (the “Company”) as of December 31, 2011, and the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows for the year then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2011, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/Sherb & Co., LLP

Sherb & Co., LLP

New York, New York

March 9, 2012

F-2

TIANLI AGRITECH, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2012		2011
ASSETS
Current Assets:
Cash and cash equivalents	$	7,477,205	$	6,507,742
Accounts receivable		158,047		126,866
Inventories		10,232,893		9,578,040
Advances to suppliers		189,094		-
Prepaid expenses		237,247		164,664
Loan to An Puluo		-		1,101,582
Restricted cash		793,512		-
Other receivables		208,325		154,775
Assets - discontinued operations		-		1,402,842
Total Current Assets		19,296,323		19,036,511

Long-term prepaid expenses		1,681,488		1,818,399
Plant and equipment, net of accumulated depreciation of $4,979,716 and
$3,353,303 at December 31, 2012 and 2011, respectively		24,400,573		17,676,999
Construction in progress		1,655,901		3,126,317
Biological assets, net of accumulated amortization of $2,422,048 and
$1,090,459 at December 31, 2012 and 2011, respectively		4,357,846		3,886,580
Intangible assets, net		1,485,773		1,522,709

Total Assets	$	52,877,904	$	47,067,515

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Short-term loans	$	7,101,935	$	4,721,064
Accounts payable and accrued payables		190,811		172,541
Due to An Puluo		-		35,951
Other payables		2,893,332		781,037
Due to related party		125,842		120,326
Liabilities - discontinued operations		-		1,198,544
Total Current Liabilities		10,311,920		7,029,463

Stockholders' Equity:
Common stock ($0.001 par value, 50,000,000 shares authorized,
11,194,000 and 10,135,000 shares issued and outstanding as of
December 31, 2012 and 2011, respectively)		11,194		10,135
Additional paid in capital		14,888,470		13,520,276
Statutory surplus reserves		2,416,647		2,416,647
Retained earnings		21,582,277		21,795,072
Accumulated other comprehensive income		2,609,374		2,295,922
Stockholders' Equity - Tianli Agritech Inc. and Subsidiaries		41,507,962		40,038,052
Noncontrolling interest		1,058,022		-
Total Stockholders' Equity		42,565,984		40,038,052
Total Liabilities and Stockholders' Equity	$	52,877,904	$	47,067,515

See accompanying notes to consolidated financial statements

F-3

TIANLI AGRITECH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

	For the Year Ended December 31,
	2012			2011


Sales	$	26,529,423		$	28,638,431
Cost of goods sold		23,073,991			18,034,434
Gross profit		3,455,432			10,603,997

Operating expenses:
General and administrative expenses		2,239,737			2,450,399
Selling expenses		1,181,441			101,216
Total operating expenses		3,421,178			2,551,615

Income from operations		34,254			8,052,382

Other income (expense):
Interest expense		(461,299	)		(181,218	)
Subsidy income		218,605			233,928
Other income (expense)		(43,534	)		(210,064	)
Total other expenses		(286,228	)		(157,354	)

Income (loss) before income taxes		(251,974	)		7,895,028

Income taxes		-			-
Net income (loss) from continuing operations		(251,974	)		7,895,028

Discontinued operations:
Gain from operations of discontinued component, net of taxes		39,179			201,106

Net income (loss)		(212,795	)		8,096,134

Other comprehensive income:
Unrealized foreign currency translation adjustment		313,452			1,057,803

Comprehensive income	$	100,657		$	9,153,937

Earnings per share - basic and diluted:
Weighted-average shares outstanding, basic and diluted		10,605,625			10,135,000

Continuing operations - Basic & diluted	$	(0.02	)	$	0.78
Discontinued operations -Basic & diluted	$	-		$	0.02

See accompanying notes to consolidated financial statements

F-4

TIANLI AGRITECH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Year Ended December 31,
	2012			2011


CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from continuing operations	$	(251,974	)	$	7,895,028
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization		2,969,098			2,248,545
Amortization of prepaid expenses		406,357			188,998
Bad debt expense		-			54,218
Stock-based compensation		1,188,373			255,454
Written off advances to suppliers		-			26,584
Loss on disposal of construction in progress		49,338			-
Changes in operating assets and liabilities:
Accounts receivable		(30,095	)		(124,883	)
Inventories		(573,473	)		(4,507,283	)
Advances to suppliers		(189,025	)		1,009,718
Prepaid expenses		(366,450	)		(229,070	)
Other receivables		(52,219	)		131,164
Accounts payable and accrued payables		16,802			30,871
Other payables		2,287,254			590,777
Total adjustments		5,705,960			(324,907	)
Net cash provided by operating activities from continuing operations		5,453,986			7,570,121
Net cash provided by operating activities from discontinued operations		154,135			10,791
Net cash provided by operating activities		5,608,121			7,580,912

CASH FLOWS FROM INVESTING ACTIVITIES
Cash collected from loan to An Puluo		1,110,512			-
Acquisition payables		-			(940,994	)
Advance to An Puluo		-			(1,084,363	)
Payment for long-term prepaid expenses		-			(1,831,987	)
Purchase of intangible assets		-			(785,223	)
Investment in construction in progress		(6,977,751	)		(3,077,452	)
Proceeds from disposal of construction in progress		509,842			-
Proceeds from disposal of biological assets		-			-
Deposits for purchase of equipment		-			-
Purchase of biological assets		(1,760,034	)		(1,923,470	)
Purchase of plant and equipment		(213,872	)		(4,605,866	)
Net cash used in investing activities		(7,331,303	)		(14,249,355	)

CASH FLOWS FROM FINANCING ACTIVITIES
Increase in restricted cash		(793,223	)		-
Due to An Puluo		-			35,389
Due to related party		-			161,793
Proceeds from the noncontrolling shareholder's capital investment		1,057,636			-
Repayment of short-term loans		(4,759,336	)		(743,564	)
Proceeds from short-term loans		7,099,343			4,647,272
Net cash provided by financing activities		2,604,420			4,100,890

EFFECT OF EXCHANGE RATE CHANGES ON CASH		88,225			1,091,502

NET INCREASE (DECREASE) IN CASH		969,463			(1,476,051	)

CASH, BEGINNING OF YEAR		6,507,742			7,983,793

CASH, END OF YEAR	$	7,477,205		$	6,507,742

SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest	$	484,260		$	201,589
Income tax	$	-		$	-

See accompanying notes to consolidated financial statements

F-5

TIANLI AGRITECH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF THE STOCKHOLDERS' EQUITY

	Common Stock				Additional		Statutory Surplus		Retained			Accumulated Other Comprehensive		Noncontrolling
	Shares		Amoount		Paid-in Capital		Reserves		Earnings			Income		Interest		Total
Balance, December 31, 2010		10,125,000	$	10,125	$	13,445,712	$	1,510,423	$	14,605,162		$	1,238,119	$	-	$	30,809,541

Stock-based compensation to consultants		10,000		10		53,190		-		-			-		-		53,200
Options granted to director		-		-		21,374		-		-			-		-		21,374
Appropriation to statutory surplus reserves		-		-		-		906,224		(906,224	)		-		-		-
Comprehensive income:
Net income		-		-		-		-		8,096,134			-		-		8,096,134
Unrealized foreign currency translation adjustment		-		-		-		-		-			1,057,803		-		1,057,803
Subtotal

Balance, December 31, 2011		10,135,000		10,135		13,520,276		2,416,647		21,795,072			2,295,922		-		40,038,052

Stock-based compensation to consultants		960,000		960		1,083,840		-		-			-		-		1,084,800
Stock-based compensation to employees		40,000		40		45,160		-		-			-		-		45,200
2011 stock-based compensation to an investor relationship consulting firm		34,000		34		180,846		-		-			-		-		180,880
2012 stock-based compensation to an investor relationship consulting firm		25,000		25		36,975		-		-			-		-		37,000
Options granted to director		-		-		21,373		-		-			-		-		21,373
Capital investment from noncontrolling interest shareholders in one of Chinese subsidiaries		-		-		-		-		-			-		1,058,022		1,058,022
Comprehensive income:
Net income		-		-		-		-		(212,795	)		-		-		(212,795	)
Unrealized foreign currency translation adjustment		-		-		-		-		-			313,452		-		313,452
Subtotal

Balance, December 31, 2012		11,194,000	$	11,194	$	14,888,470	$	2,416,647	$	21,582,277		$	2,609,374	$	1,058,022	$	42,565,984

See accompanying notes to consolidated financial statements

F-6

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 1—ORGANIZATION AND DESCRIPTION OF BUSINESS

The consolidated financial statements include the financial statements of Tianli Agritech, Inc. (referred to herein as “Tianli”); its wholly-owned subsidiary, HC Shengyuan Limited, a Hong Kong limited liability company (“HCS”); HCS’s wholly-owned subsidiary, Wuhan Fengxing Agricultural Science and Technology Development Co., Ltd., a Chinese limited liability company and a wholly foreign owned entity (“WFOE”); WFOE’s variable interest entity, Wuhan Fengze Agricultural Science and Technology Development Co., Ltd., a Chinese limited liability company (“Fengze” or the “VIE”), where WFOE is deemed the primary beneficiary; Fengze’s subsidiary, Hubei Tianzhili Breeder Hog Co., Ltd., a Chinese limited liability company (“Tianzhili”). All of Tianli’s operations are conducted by Fengze and Tianzhili whose results of operations are consolidated into those of Tianli. HCS and WFOE are sometimes referred to as the “subsidiaries”. Tianli, its consolidated subsidiaries and Fengze and Tianzhili are collectively referred to herein as the “Company”, “we” and “us”, unless specific reference is made to an entity.

Tianli was incorporated in the British Virgin Islands on November 9, 2009 as a limited liability company. The Company is engaged in the business of breeding, raising, and selling hogs for use in China’s pork meat production and hog breeding by other hog producers. The Company also sold pork products through its retail operation operated until June 2012. The Company operates eleven production farms in areas around Wuhan City, within Hubei Province, People’s Republic of China (“PRC”). Its wholly owned subsidiary, HCS, was incorporated in Hong Kong on November 24, 2009 as a limited liability company. Other than its equity interest in HCS, Tianli does not own any assets or conduct any operations.

WFOE was incorporated in Wuhan City on June 2, 2005. On November 26, 2009, HCS entered into a stock purchase agreement with WFOE where HCS would acquire a 100% equity interest of WFOE. On January 19, 2010, the Wuhan Municipal Commission of Commerce approved the ownership change. On January 27, 2010, the ownership change was declared effective by Wuhan Administrator for Industry & Commerce. HCS acquired WFOE and became the holder of 100% of the equity interest of WFOE, and WFOE effectively became the wholly-owned subsidiary of the Company. Other than the equity interest in WFOE, HCS does not own any assets or conduct any operations.

WFOE conducts its business through Fengze, which is consolidated as a variable interest entity, as discussed below.

Chinese laws and regulations currently do not prohibit or restrict foreign ownership in hog breeding businesses. However, Chinese laws and regulations do prevent direct foreign investment in certain industries. On December 1, 2009, to protect the Company’s stockholders from possible future foreign ownership restrictions, Fengze and all of the stockholders of Fengze (“Principal Stockholders”) entered into an Entrusted Management Agreement (the “EMA”) with WFOE, which provides that WFOE will be fully and exclusively responsible for the management of Fengze. WFOE is also entitled to receive the residual return of Fengze. As a result of the agreement, WFOE will absorb 100% of the expected losses and gains of Fengze, which results in WFOE being the primary beneficiary of Fengze.

WFOE also entered into a Pledge of Equity Agreement (the “PEA”) with the Principal Stockholders, who pledged all their equity interest in these entities to WFOE. The PEA, which was entered into by each Principal Shareholder, pledged each of the Principal Stockholders’ equity interest in WFOE as a guarantee for the entrustment payment under the EMA.

In addition, WFOE entered into an Option Agreement (the “OA”) to acquire the Principal Stockholders’ equity interest in these entities if or when permitted by the PRC laws.

F-7

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 1—ORGANIZATION AND DESCRIPTION OF BUSINESS - CONTINUED

Collectively, the EMA, PEA and OA are referred to as the Exclusive Agreements, based upon which the Company consolidates the variable interest entity, Fengze, as required by generally accepted accounting principles in the United States (“US GAAP”), because the Company is the primary beneficiary of the VIE. The profits and losses of Fengze are allocated to WFOE and thus to the Company based upon the EMA.

The Company completed its Initial Public Offering (“IPO”) on July 19, 2010, whereby it issued 2,000,000 shares of its common stock at a price of $6.00 per share.

On May 12, 2011, the Company acquired its eleventh farm from An Puluo Development Co. (“An Puluo”), which is located in Enshi Tujia and Miao Autonomous Prefecture of Hubei Province, for a purchase price of $2.2 million.

On June 22, 2011, Fengze established Hubei Tianzhili Breeder Hog Co., Ltd., then a wholly owned subsidiary (“Tianzhili”), in Enshi City, Hubei Province as a limited liability company. Tianzhili engaged in the business of raising and selling black hogs through several major Chinese retail channels in cooperation with An Puluo. This collaborative agreement commenced in the third quarter of 2011 and was terminated as of June 15, 2012.

On November 5, 2012, XMRJ LLP (“XMRJ”), a limited partner enterprise formed under Chinese law that engages in equity investments in China, agreed to invest RMB 10,000,000, or approximately $1,600,000, in Hubei Tianzhili. Until such investment, Tianzhili was a wholly-owned subsidiary of Fengze. Tianzhili conducts our black hog breeding operations. In consideration for its commitment to make the investment and an interest free loan, XMRJ received a 40% equity interest in Tianzhili. As of December 31, 2012, Tianzhili received $1,057,636 or RMB 6,666,700 from XMRJ.

In connection with its investment in Tianzhili, XMRJ agreed to loan RMB 5,000,000, or approximately $800,000, to Tianzhili without interest.

F-8

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with US GAAP. The basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the accounting principles of the PRC (“PRC GAAP”). The Company’s functional currency is the Chinese Renminbi (“RMB”); however the accompanying consolidated financial statements have been translated and presented in United States Dollars (“USD”). All significant intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of these financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Accordingly, actual results may differ from these estimates. Significant estimates include the useful lives of property and equipment, land use rights and biological assets, and assumptions used in assessing impairment for long-term assets.

Principles of Consolidation

Pursuant to US GAAP, Fengze is the VIE of the Company and the Company is the primary beneficiary of the VIE. Accordingly, the VIE has been consolidated in the Company’s financial statements.

Based on various VIE agreements, the Company is able to exercise control over the VIE, and obtain the financial interests such as the periodic income of the VIE through the EMA, PEA, and OA and to acquire the net assets of VIE through purchase of their equities at essentially no cost. The Company therefore concluded that its interest in the VIE is not a non-controlling interest and therefore is not classified as such. Based on the Exclusive Agreements the amount of controlling interest of the Fengze shareholders, who are holding shares of the VIE for the Company, is zero. They exercise no controls over the VIE and no financial interests of ownership are due to them either for periodic income or the net assets.

Cash and Cash Equivalents

Cash and cash equivalents consist of all cash balances and highly liquid investments with an original maturity of three months or less. Because of the short maturity of these investments, the carrying amounts approximate their fair value. Restricted cash is excluded from cash and cash equivalents.

Accounts Receivable

Accounts receivable is stated at cost, net of an allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses resulting from the failure of customers to make required payments. The Company reviews the accounts receivable on a periodic basis and makes allowances where there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, the customer’s payment history, its current credit-worthiness and current economic trends. Management believes that the accounts receivable is fully collectable.

F-9

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Therefore, no allowance for doubtful accounts is deemed to be required at December 31, 2012 and 2011.

Inventories

Inventories are stated at the lower of cost, as determined by the weighted-average method, or market. Management compares the cost of inventories with the market value, and allowance is made for writing down the inventories to their market value if that is lower. Costs of raised animals include proportionate costs of breeding, including amortization of the breeding herd or biological assets, plus the costs of feed and other maintenance costs through the balance sheet date. Management inspects and monitors inventory on a continual basis.

Prepaid Expenses

Prepaid expenses at December 31, 2012 and 2011 totaled $237,247 and $164,664, respectively, and includes prepayments to suppliers for merchandise that had not yet been shipped to us, as well as services that had not yet been provided to us. We recognize prepayments as inventory or expense as suppliers make delivery of goods or provide services, in compliance with our accounting policy. For the years ended December 31, 2012 and 2011, the Company had amortized its prepaid insurance expense and service expense of $294,065 and $108,354, respectively.

Plant and Equipment

The Company states plant and equipment at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to operations as incurred; additions, renewals and betterments are capitalized. When plant and equipment assets are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any resulting gain or loss is recorded as an operating expense. In accordance with US GAAP, the Company examines the possibility of decreases in the value of plant and equipment when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company computes depreciation using the straight-line method over the estimated useful lives of the assets with a residual value of 5% of plant and equipment.

Estimated useful lives of the Company’s assets are as follows:

		Useful Life
Buildings		20 years
Vehicles		5 years
Office equipment		5 years
Production equipment		5-10 years

Construction in Progress

Construction in progress consists of amounts expended for building construction of new breeding and animal rearing facilities. Once the building construction is completed and the facilities are approved for adequate breeding and animal rearing activity, the construction in progress assets are categorized as buildings and production equipment and are then accounted for in plant and equipment. Assets accounted for as plant and equipment are used in the Company’s production process, whereupon they are depreciated over their estimated useful lives.

F-10

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Biological Assets

Biological assets consist primarily of hogs purchased or selected from the Company’s own production for breeding and farrowing, which management believes will produce piglets that grow faster and have better quality breeding capabilities and carcasses with a high percentage of meat and a small quantity of fat. The costs to purchase and cultivate these breeding hogs and the expenditures related to labor and materials to feed the breeding hogs until they become commercially productive and breedable are capitalized. When these breeding hogs are entered into breeding and farrowing production, amortization of the costs of these breeding hogs commences. The estimated production life for breeding hogs is three years, and the costs are amortized to a residual value of $76 (RMB 500). After the breeding hogs have completed their production life of breeding, these breeding hogs are then transferred into inventory as the vast majority of these breeding hogs will then be sold for meat processing. Expenses incurred maintaining breeding hogs during gestation until piglets are weaned are capitalized into inventory and included in Work in process—biological assets, a component of inventories. If these breeding hogs produce piglets which are deemed appropriate for internal breeding purposes, the gestation and raising costs until weaned for these piglets are then allocated into biological assets.

Amortized expenses pertaining to biological assets are included in inventory costs for those piglets to be sold and ultimately become a component of cost of goods sold.

Land Use Rights

According to the laws of the PRC, the government owns all the land in the PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. Land use rights are being amortized using the straight-line method over their lease terms.

The Company carries land use rights at cost less accumulated amortization. In accordance with US GAAP, the Company examines the possibility of decreases in the value of land use rights when events or changes in circumstances reflect the fact that their recorded value may not be recoverable. The Company computes amortization using the straight-line method over the 50 year life of the land use rights.

Impairment of Long-lived Assets

In accordance with US GAAP, the Company periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not consider it necessary to record any impairment charges during the years ended December 31, 2012 and 2011.

F-11

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted ASC 820, Fair Value Measurements and Disclosure (“ASC 820”) for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.

ASC 820 defines fair value as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data

Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

The Company did not identify any assets and liabilities that are required to be presented on the condensed consolidated balance sheets at fair value in accordance with the relevant accounting standards.

The carrying values of cash and cash equivalents, trade receivables and payables, and short-term bank loans and debts approximate their fair values due to the short maturities of these instruments.

Non-controlling Interest

Non-controlling interests in the Company’s subsidiaries are recorded in accordance with the provisions of ASC 810 and are reported as a component of equity, separate from the parent’s equity. Purchase or sale of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.

Revenue Recognition

The Company generates revenues from the business of breeding, raising, and selling hogs for use in Chinese pork meat production and the sale of hogs for breeding to other hog producers. From September 30, 2011, until June 15, 2012, the Company also generated revenue from selling processed pork products to retailers.

Revenues generated from the sales of breeding and meat hogs and processed pork are recognized when these products are delivered to customers in accordance with previously agreed upon pricing and delivery arrangements, and the collectability of these sales is reasonably assured. Cash payment, which sometimes is in the form of wired cash transfers to the Company’s bank account, is usually received by the Company at the time the hogs are sold. Sold hogs and processed pork are not returnable and accordingly, no provision has been made for returnable goods. The customers are responsible for the shipping of the hogs that they have purchased.

F-12

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Collaborative Arrangements

The Company evaluates whether an arrangement is a collaborative arrangement under FASB ASC Topic 808, Collaborative Arrangements, at its inception based on the facts and circumstances specific to the arrangement. The Company also reevaluates whether an arrangement qualifies or continues to qualify as a collaborative arrangement whenever there is a change in either the roles of the participants or the participants’ exposure to significant risks and rewards dependent on the ultimate commercial success of the endeavor. For those collaborative arrangements where it is determined that the Company is the principal participant, costs incurred and revenue generated from third parties are recorded on a gross basis in the financial statements.

The Company’s collaboration agreements with third parties are performed on a ‘‘best efforts’’ basis with no guarantee of either technological or commercial success.

Payments to and from the Company’s collaboration partners are presented in the statements of income based on the nature of the arrangement (including its contractual terms), the nature of the payments and applicable accounting guidance. Under the collaborative agreement with An Puluo, the Company was the principal in the transaction and the Company recorded revenues when An Puluo sold the product and title passed to its customer. The Company and An Puluo share the profit from this collaborative business and all profit sharing to An Puluo was recorded as part of Cost of sales in the Company’s consolidated statements of income. On June 15, 2012, the Company terminated the collaborative agreement with An Puluo.

In accordance with the Company’s collaborative agreement with An Puluo, the Company was able to establish retail operations within existing retail facilities with whom An Puluo had ongoing business arrangements. In these retail facilities, the Company was permitted to retail pork products. The owners of these retail facilities are responsible for collection of all retail sales made by the Company. These retail facilities were responsible for remitting to the Company the sales revenue that they collected on behalf of the Company, less any fees for operating a retail operation in their facility. The receivable as of June 15, 2012, along with all assets and liabilities generated and incurred under the collaborative arrangement, has been assumed by An Puluo after the Company terminated the collaborative arrangement as An Puluo has the capacity to operate a retail operation. Net assets and liabilities that arose under this terminated collaborative arrangement have been resolved as of December 31, 2012 and are reflected as $0 in net assets and liabilities of discontinued operations.

According to the agreement, the Company and An Puluo share the net income of the collaborative retail business on a ratio of 60% to the Company and 40% to An Puluo. Profit sharing to An Puluo during the years ended December 31, 2012 and 2011 was $15,672 and $80,442, respectively. The profit sharing payable though June 15, 2012 has been resolved with An Puluo as part of the termination of the collaborative arrangement. As of December 31, 2011 profit share payable to An Puluo is reflected in liabilities of discontinued operations.

F-13

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Segment Information

The Company follows FASB ASC 280-Segment Reporting, which requires that companies disclose segment data based on how management makes decision about allocating resources to segments and evaluating their performance. The Company’s management has determined that as of December 31, 2012 their operations are in one segment, that of hog farming. While the Company operated under the collaboration agreement with An Puluo it operated under two segments, that of hog farming and retail pork product sales. Subsequent to the cancellation of the collaboration agreement on June 15, 2012 the Company operates in the hog farming segment only.

Income Taxes

The Company accounts for income taxes under the provisions of Section 740-10-30 of the FASB Accounting Standards Codification, which is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in its financial statements or tax returns. The Company did not have any deferred tax assets or liabilities as of December 31, 2012 and 2011.

The Company is subject to the Enterprise Income Tax law (“EIT”) of the People’s Republic of China. However, according to the EIT, companies that are engaged in the agricultural business and primary processing of agricultural products are exempt from the 25% enterprise income tax. The Company is engaged in breeding, raising, and selling hogs for use in Chinese pork meat production and hog breeding, which is exempt from the Chinese income tax. Tianli is incorporated in the British Virgin Islands. Under the current tax laws of the British Virgin Islands, the Company is not subject to income taxes. In addition, the Company is not subject to the PRC’s 17% VAT tax for hog sales or the 5% business tax levied on incomes from services rendered. According to the PRC tax regulations, companies engaging in the agricultural business are exempt from these taxes. With respect to the Company’s terminated collaboration agreement with An Puluo, the Company had engaged in retail sales activities which were not exempt from VAT taxes. With respect to this operation, the Company was required to collect VAT taxes of 13% from their customers. As of December 31, 2012 and 2011, the Company has no VAT payable with respect to their retail operations as they were resolved with An Puluo upon termination of the collaborative arrangement.

F-14

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Basic and Diluted Earnings per Share

The Company reports earnings per share in accordance with FASB ASC 260 “Earnings per share”. The Company’s basic earnings per share are computed using the weighted average number of shares outstanding for the periods presented. Diluted earnings per share are computed based on the assumption that any dilutive options or warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, the Company’s outstanding stock warrants are assumed to be exercised, and funds thus obtained were assumed to be used to purchase common stock at the average market price during the period. There were no dilutive instruments outstanding during the years ended December 31, 2012 and 2011.

Foreign Currency Translation

As of December 31, 2012 and 2011, the accounts of Tianli were maintained and its financial statements were expressed in Chinese Renminbi (RMB). Such financial statements were translated into United States Dollars (USD) in accordance with US GAAP, with the RMB as the functional currency. All assets and liabilities are translated at the current exchange rates as of the balance sheet dates. These rates were RMB 6.30 per US dollar and RMB 6.35 per US dollar as of December 31, 2012 and 2011, respectively. Stockholders’ equity is translated at the historical rates and items in the statements of operations and cash flows are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with US GAAP as a component of stockholders’ equity.

During the years ended December 31, 2012 and 2011, the transactions of Tianli were denominated and recorded in RMB and are translated at the average rates of exchange for the period. There rates were RMB 6.30 and RMB 6.46 per US dollar for the years ended December 31, 2012 and 2011, respectively. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Stock Based Compensation

In December 2004, the Financial Accounting Standards Board, or FASB, issued FASB ASC 718-10-55 - Compensation-Stock Compensation, or ASC 718-10-55. Under ASC 718-10-55, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. In addition, FASB ASC 825-10-50-10 – Financial Instruments – Overall – Disclosures, or ASC 825-10-50-10, expresses views of the Securities and Exchange Commission, or the SEC, staff regarding the interaction between ASC 718-10-55 and certain SEC rules and regulations and provides the staff's views regarding the valuation of share-based payment arrangements for public companies. The Company’s compensation cost is measured on the date of grant at its fair value. Such compensation amounts, if any, are amortized over the respective vesting periods or period of service of the option grant.

F-15

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessments inherently involve an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material would be disclosed.

Loss contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.

Accrual of Environmental Obligations

ASC Section 410-30-25 “Recognition” of environmental obligations requires the accrual of a liability if both of the following conditions are met:

a) Information available before the financial statements are issued or are available to be issued indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of the financial statements.

b) The amount of the loss can be reasonably estimated.

As of December 31, 2012 and 2011, the Company did not have any environmental remediation obligations, nor did it have any asset retirement obligations under ASC 410. Furthermore, the Company did not have any environmental remediation loss contingencies requiring recognition or disclosure in its financial statements.

Reclassifications

Certain reclassifications have been made to the prior periods’ financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or the sum of retained earnings and statutory reserves.

F-16

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 2—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recently Issued Accounting Pronouncements

Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

NOTE 3—DISCONTINUED OPERATIONS

On June 15, 2012, the Company entered into a termination agreement with An Puluo to terminate its collaborative agreement retail business.

Pursuant to the termination agreementon, the Company cancelled the collaborative agreement with An Puluo. After the termination, the Company no longer had any operations in a retail segment. As of June 15, 2012, the Company had realized accumulated retained earnings of $240,286 from its collaborative arrangement with An Puluo since the inception of the collaboration.

In accordance with Accounting Standard Codification (“ASC”) 360 (Formerly FAS 144) of Financial Accounting Standards Board (“FASB”), Accounting for Impairment or Disposal of Long-Lived Assets, the Company has reflected the An Puluo collaboration agreement, formerly the Company’s retail segment, as discontinued operations with results of operations reflected in the consolidated statements of operations through the date of the sale as discontinued operations for all periods presented. The assets, liabilities and equity of the retail segment in the Company’s consolidated balance sheets as of December 31, 2012 and 2011 have been reclassified as discontinued operations. The cash flows from discontinued operations have also been reclassified. The Company has recorded a gain from operations of the discontinued operation, net of income taxes, of $39,179 and $201,106, for the years ended December 31, 2012 and 2011, respectively.

The following table presents the revenues and net gain from discontinued operations for the periods presented:

	For the Year Ended December 31,
	2012		2011
Revenues	$	1,902,575	$	2,799,364
Net gain from discontinued operations	$	39,179	$	201,106

F-17

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 4—ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:

	December 31,
	2012		2011
Accounts receivable	$	158,047	$	126,866
Less: Allowance for doubtful accounts		-		-
	$	158,047	$	126,866

NOTE 5—INVENTORIES

Inventories consisted of the following:

	December 31,
	2012		2011
Raw materials	$	1,678,406	$	1,208,404
Work in process—biological assets		4,385,742		4,613,624
Infant hogs		4,168,745		3,756,012
	$	10,232,893	$	9,578,040

Management compares the cost of inventories with the market value, and allowance is made for writing down the inventories to their market value, if lower. As of December 31, 2012 and 2011, the Company determined that no such write downs were necessary. The term “Work in process—biological assets” has the meaning set forth above in Note 2—Biological Assets.

NOTE 6—ADVANCES TO SUPPLIERS

The Company makes advances for materials or services the Company uses in its operations. As of December 31, 2012 and 2011, advances to suppliers amounted to $189,094 and $0, respectively.

The balance as of December 31, 2012 included deposits of $177,191 for the purchase of breeding hogs.

F-18

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 7—OTHER RECEIVABLES

At December 31, 2012 and 2011, the Company reported other receivables of $208,325 and $154,775, respectively, including an allowance for doubtful receivables of $55,547 and $55,079.

The balances as of December 31, 2012 and 2011 included a deposit of $158,702 and $157,369 to a professional loan guarantee service company for obtaining a short-term loan from Shanghai Pudong Development Bank.

NOTE 8—RESTRICTED CASH

At December 31, 2012, the Company reported restricted cash of $793,512. The restricted cash as of December 31, 2012 was a deposit as part of collateral for the short-term loan from Shanghai Pudong Development Bank.

NOTE 9—LOAN TO AN PULUO

As of December 31, 2011, the Company had a loan to An Puluo of $1,101,582. The loan receivable was non-interest bearing, unsecured and due on demand. The Company collected on this loan receivable in May 2012.

NOTE 10—PLANT AND EQUIPMENT

Plant and equipment consist of the following:

	December 31,
	2012			2011
Buildings	$	25,219,192		$	17,321,424
Vehicles		693,742			681,067
Office equipment		535,870			262,679
Production equipment		2,931,485			2,765,132
		29,380,289			21,030,302
Less: Accumulated depreciation		(4,979,716	)		(3,353,303	)
	$	24,400,573		$	17,676,999

On May 12, 2011, the Company acquired its eleventh farm from Au Puluo, which is located in Enshi Tujia and Miao Autonomous Prefecture of Hubei Province, for a purchase price of approximately $2.2 million. The consideration was allocated to long-term rental prepayments for parcels of land of $1,765,130 (RMB 11,216,518) and plant and equipment of $469,507.

Depreciation expense was $1,597,411 and $1,142,916 for the years ended December 31, 2012 and 2011, respectively. $1,173,343 and $1,080,536 of depreciation expense was capitalized into inventories during the years ended December 31, 2012 and 2011.

F-19

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 11—CONSTRUCTION IN PROGRESS

Construction in progress consists of amounts expended for the construction of new breeding and animal rearing facilities. Once construction is completed and the facilities are approved to be used for breeding and animal rearing activity, the construction in progress assets are placed into production and transferred into plant and equipment, whereupon they are depreciated over their estimated useful lives. As of December 31, 2012 and 2011, the construction in progress was $1,655,901 and $3,126,317, respectively. Included in this amount were:

$38,089 and $750,992 as of December 31, 2012 and 2011 for construction of a new feed processing facility, a new refrigerator and improvements of several of the Company’s hog farms. The new refrigerator had been installed in the second quarter of 2012. The construction for the new feed processing facility was finished in the fourth quarter of 2012; and

$1,617,812 and $2,375,325 as of December 31, 2012 and 2011, respectively, funding to local independent farmers to construct small-scale hog farms. During the year ended December 31, 2011, the Company signed 7 joint development agreements, for periods of approximately 10 years, with 7 local cooperatives in the Enshi Autonomous Prefecture in Hubei Province whereby the Company, the relevant governmental agencies and the cooperatives will assist participating farmers to breed and raise Enshi black hogs which will be purchased by the Company for resale as meat hogs or retained or sold as breeders at the Company’s discretion. Under these agreements, the Company provides funds to local independent farmers to construct small-scale hog rearing facilities, within the cooperatives, which are sufficient for the Company’s requirements to grow black hogs for sale to the Company. Pursuant to these joint development agreements, title to the physical plant and equipment included in these small-scale hog rearing facilities belongs to the Company while the local cooperatives (and the individual farmers) have the right to use them. As of December 31, 2012 and 2011, the Company has expended a total of $10.54 million and $4.27 million to build these hog rearing facilities. With respect to three of the cooperatives located in Xianfeng County, Enshi Autonomous Prefecture, the Company has purchased $1.28 million of hog rearing facilities and equipment that has been completed and is operational and included in plant and equipment as of December 31, 2012. With regard to four of the cooperatives located in Laifeng County, Enshi Autonomous Prefecture, the Company has purchased $9.26 million of hog rearing facilities and equipment, including $7.65 million of hog rearing facilities and equipment that has been completed and recorded as part of plant and equipment as of December 31, 2012. The remaining balance of $1.62 million which has not been completed and is not operational is included in construction in progress as of December 31, 2012.

According to the joint development agreements, each participating farmer paid a deposit of approximately one-third of the construction cost of the hog farm to the Company upon completion of the respective hog farm. The deposit is amortized against the depreciation expense over a period of 10 years. Should the farmer withdraw from the program within this period, the deposit will be refunded proportionately. As of December 31, 2012 and 2011, deposits from farmers were $2,893,014 and $600,156, respectively, and were included in other payables.

F-20

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 12—BIOLOGICAL ASSETS

Biological assets consist of the following:

	December 31,
	2012			2011
Breeding hogs	$	6,779,893		$	4,977,039
Less: Accumulated amortization		(2,422,047	)		(1,090,459	)
	$	4,357,846		$	3,886,580

As of December 31, 2012, $552,548 of breeding hogs was a breed of black hogs. Amortization of the biological assets, included as a component of inventory, for the years ended December 31, 2012 and 2011 was $1,321,865 and $1,060,754, respectively. $1,321,865 and $1,060,754 of amortization of the biological assets was capitalized into inventories during the years ended December 31, 2012 and 2011.

NOTE 13—LONG-TERM PREPAID EXPENSES

Long-term prepaid expenses primarily consist of prepaid rental expenses for three parcels of land comprising the Company’s eleventh farm. The prepaid rental expenses are being amortized using the straight-line method over the lease term of 21.33 years.

Long-term prepaid expenses at December 31, 2012 and 2011 are as follows:

	December 31,
	2012			2011
Long-term prepaid rental expenses	$	1,780,089		$	1,765,130
Office decoration expenses		85,700			136,546
		1,865,789			1,901,676
Less: Accumulated amortization		(184,301	)		(83,277	)
	$	1,681,488		$	1,818,399

Amortization expense for the years ended December 31, 2012 and 2011 was $112,292 and $80,644, respectively.

The estimated amortization expense of long-term prepaid expenses over each of the next five years and thereafter will be $112,292 per annum.

F-21

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 14—INTANGIBLE ASSETS

According to the laws of PRC, the government owns all the land in PRC. Companies or individuals are authorized to possess and use the land only through land use rights granted by the Chinese government. Land use rights are being amortized using the straight-line method over the lease term of 50 years.

Land use rights at December 31, 2012 and 2011 are as follows:

	December 31,
	2012			2011
Land use rights	$	1,682,532		$	1,668,393
Less: Accumulated amortization		(196,759	)		(145,684	)
	$	1,485,773		$	1,522,709

Amortization expense for the years ended December 31, 2012 and 2011 was $49,822 and $44,875, respectively.

The estimated amortization expense of land use rights over each of the next five years and thereafter will be $49,822 per annum.

F-22

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 15—SHORT-TERM LOANS

As of December 31, 2012 and 2011, the short-term loans are as follows:

	December 31,
	2012		2011
Loan payable to Shanghai Pudong Development Bank, annual interest rate of 8.203%, due by May 31, 2012, guaranteed by Wuhan Agriculture Guarantee Co., Ltd., Fengze and Fengxin	$	-	$	3,147,376
Loan payable to Communication Bank of China, annual interest rate of 8.528%, due by November 25, 2012, guaranteed by Wuhan Agriculture Guarantee Co., Ltd., Fengze		-		1,573,688
Loan payable to Wuhan Rural Commercial Bank, annual interest rate of 9.184%, due by May 23, 2013, guaranteed by Wuhan Science and Technology Guarantee Co., Ltd.		761,772		-
Loan payable to Wuhan Rural Commercial Bank, annual interest rate of 8.100%, due by July 22, 2013, guaranteed by Xin Zhang		825,253		-
Loan payable to Shanghai Pudong Development Bank, annual interest rate of 6%, due by July 9, 2013, guaranteed by Wuhan Agriculture Guarantee Co., Ltd., Xin Zhang, and Hangyin Li with collateral of $793,512 restricted cash		1,587,025		-
Loan payable to Shanghai Pudong Development Bank, annual interest rate of 6%, due by August 12, 2013, guaranteed by Wuhan Agriculture Guarantee Co., Ltd., Xin Zhang, and Hangyin Li with collateral of $793,512 restricted cash		2,340,861		-
Loan payable to Communication Bank of China, annual interest rate of 7.8%, due by November 22, 2013, guaranteed by Wuhan Agriculture Guarantee Co., Ltd.		1,587,024		-
	$	7,101,935	$	4,721,064

In 2012, the Company paid $161,357 and $31,729 to guarantee service providers for providing the guarantee of the loans from Shanghai Pudong Development Bank and Communication Bank of China. In 2011, the Company paid $68,333 and $86,749 to guarantee service providers for providing the guarantee of the loans from Shanghai Pudong Development Bank and Communication Bank of China. Amount of $75,309 and $155,082 was recorded as interest expense for the years ended December 31, 2011 and 2010, respectively.

F-23

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 16—ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

As of December 31, 2012 and 2011, accounts payable and accrued liabilities are as follows:

	December 31,
	2012		2011
Accounts payable	$	146,568	$	153,058
Other taxes payable		571		19,483
Others		43,672		-
	$	190,811	$	172,541

NOTE 17—DUE TO AN PULUO

As of December 31, 2012 and 2011, amounts due to An Puluo are as follows:

	December 31,
	2012		2011
Payable for purchase of finished goods	$	-	$	35,951

In August 2011, the Company entered into a collaborative agreement (the “Agreement”) with an unrelated pork processor, An Puluo, to pursue retail business opportunities, under an exclusive right, selling An Puluo processed pork products. This Agreement will allow the Company to begin to brand their name, “Tianli An Puluo”, with upscale consumers in greater Wuhan City. In conjunction with the Agreement the Company purchased processed pork from An Puluo, after which the collaborative aspect of the Agreement in retail marketing the pork products commenced.

At the inception of the collaborative retail business, the Company evaluated the facts and circumstances specific to the arrangement and has determined that it is the principal participant, and accordingly costs incurred and revenue generated from third parties are recorded on a gross basis in the Company’s financial statements.

As of June 15, 2012, this collaborative agreement had been canceled.

F-24

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 18—OTHER PAYABLES

Other payables at December 31, 2012 and 2011 were $2,893,332 and $781,037, respectively. Included in other payables as of December 31, 2012 were mainly deposit payables of $2,893,014. At December 31, 2011, other payables were comprised of deposits payable of $600,157 and a payable to an investor relationship consultant of $180,880.

Since the year ended December 31, 2011, the Company signed 7 joint development agreements with 7 local cooperatives in the Enshi Autonomous Prefecture in Hubei Province. Under these agreements, the Company provides funding to local independent farmers to construct small-scale hog farms in which the farmers will grow the black hogs for sale to the Company.

The amortization of deposit payables for the years ended December 31, 2012 and 2011 was $73,541 and $5,824. The following table sets forth the aggregate future amortization expected for the next five years:

	Amortization
2012	$	73,541
2013	$	73,541
2014	$	73,541
2015	$	73,541
2016	$	73,541
Thereafter	$	2,525,309

NOTE 19—RELATED PARTY TRANSACTIONS

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence. The amount due to related party was $125,842 and $120,326 as of December 31, 2012 and 2011, respectively. The amount represented the advances from the Company’s shareholder and chief executive officer, Hanying Li, for operating purposes. Such advances are non-interest bearing and due upon demand.

F-25

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 20—CAPITAL STOCK

The Company is authorized to issue 50,000,000 shares of common stock, $0.001 par value, and as of December 31, 2012 and 2011, it had 11,194,000 shares and 10,135,000 shares issued and outstanding, respectively.

The Company granted to its investor relation firm 44,000 shares of the Company’s common stock for services to be rendered up through October 2011 pursuant to an agreement made in October 2010. The shares were valued at $234,080 and amortized over the service term. The amortization of this grant was $234,080 for the year ended December 31, 2011. In July 2011, the Company issued 10,000 shares of the 44,000 shares to the investor relationship consulting firm. The remaining 34,000 shares were issued on October 11, 2012.

On December 6, 2010 the Company granted 26,000 options with exercise price of $6.00 to a director with vesting of one-third as of the date of grant, one-third vesting in December 2011, and the final one-third vesting in December 2012, contingent on the director continuing to serve as a board member. The option can be exercised through January, 2017. The Company recognizes the compensation cost over the award’s service period and for the year ended December 31, 2012 and 2011, the amortization of these options amounted to $21,373 and $21,374, respectively, based on a Black Scholes valuation of the options as of the date of the grant.

On July 12, 2012, the Company issued 1,000,000 shares of common stock as compensation to its consultants and employees, comprised of 960,000 shares to marketing consultants for black hog sales and 40,000 shares to its employees. The Company recognizes the compensation cost of $1,130,000 as part of its selling expense.

On October 11, 2012, the Company issued 25,000 shares of the Company’s common stock to the investor relationship consulting firm for its 2012 consulting services. The shares were valued at $37,000 and recognized as compensation cost as part of the Company’s general and administrative expenses.

The fair value of the director options and the placement agent warrants were estimated as of the grant date using the Black Scholes option pricing model. The determination of the fair value is affected by the price of the Company’s common stock at the date of the grant as well as assumptions made regarding the expected price volatility of the common stock over the terms of the grant, the risk-free interest rate and any expected dividends.

The table below provides the estimated fair value of the director options, and the significant assumptions used to determine their values.

	Director Options	Placement Agent Warrants
Estimated Fair Value Per Option or Warrant	$2.47	$0.56
Stock Price at Date of Grant	$5.66	$4.36
Assumptions:
Dividend Yield	0%	0%
Stock Price Volatility	50.8%	31.3%
Risk-Free Interest Rate	1.60%	1.40%

F-26

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 20—CAPITAL STOCK (CONTINUED)

The following table summarizes the stock options and warrants outstanding as of December 31, 2012 and 2011 and the activity during the year ended December 31, 2012.

	Options		Weighted Average Exercise Price		Warrants		Weighted Average Exercise Price
Outstanding as of December 31, 2011		26,000	$	6.00		210,000	$	7.21
Granted		-		-		-		-
Exercised		-		-		-		-
Forfeited		-		-		-		-
Outstanding at December 31, 2012		26,000	$	6.00		210,000	$	7.21
Exercisable at December 31, 2012		17,333	$	6.00		210,000	$	7.21

The weighted average remaining contractual life for the options and the warrants is 4 years and 2.5 years, respectively. The market value of the Company’s common stock was $0.85 and $1.26 as of December 31, 2012 and 2011, respectively. The intrinsic value of the outstanding options and the warrants as of December 31, 2012 and 2011 was $0.

NOTE 21—STATUTORY RESERVES

As stipulated by the Company Law of the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following:

•

Making up cumulative prior years’ losses, if any;

•

Allocations to the “Statutory surplus reserve” of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the Company’s registered capital;

•

Allocations to the discretionary surplus reserve, if approved by the stockholders;

•

The transfer to this reserve must be made before distribution of any dividend to shareholders. The surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such issue is not less than 25% of the registered capital.

In accordance with the Chinese Company Law, the Company has allocated 10% of its net income as the statutory reserve contributions. The reserves amounted to $2,416,647 as of December 31, 2012 and 2011.

F-27

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 22—CERTAIN RISKS AND CONCENTRATION

Credit risk and major customers

As of December 31, 2012 and 2011, 97% and 87% of the Company’s cash including cash on hand and deposits in accounts were maintained within the PRC where there is currently no rule or regulation in place for obligatory insurance to cover bank deposits in the event of a bank’s failure. However, the Company has not experienced any such losses and believes it is not exposed to any significant risks on its cash in bank accounts

The Company’s key customers are principally hog brokers, hog farmers and slaughterhouses, all of which are located in the PRC. The Company has not entered into long-term supply contracts with any of these major customers.

During the year ended December 31, 2012 and 2011, there were two customers that accounted for more than 10% of the Company’s revenue, 13% to Wuhan Mingxiang Meat Factory Co. Ltd. and 12% to Wuhan Huangpi Hengdian Zhongxin slaughter house.

Risk arising from operations in foreign countries

Substantially all of the Company’s operations are conducted in China. The Company’s operations are subject to various political, economic, and other risks and uncertainties inherent in China. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.

Risk arising from contractual arrangements with Fengze

The Company conducts substantially all of its operations, and generates substantially all of its revenues, through contractual arrangements with Fengze that provide the Company with effective control over Fengze. The Company depends on Fengze to hold and maintain contracts with its customers. Fengze owns substantially all of the Company’s intellectual property, facilities and other assets relating to the operation of the Company’s business, and employs the personnel for substantially all of its business. Neither Tianli, nor HCS nor WFOE has any ownership interest in Fengze. Although WFOE’s contractual arrangements with Fengze are valid, binding and enforceable under current PRC laws and regulations, these contractual arrangements may not be as effective in providing the Company with control over Fengze as direct ownership of Fengze would.

NOTE 23—GOVERNMENT SUBSIDIES

The Company received subsidies of $218,605 and $233,928 in the years ended December 31, 2012 and 2011, respectively for recurring breeder hog subsidies. All such subsidies are recorded as “subsidy income” in the financial statements.

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TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 24—COMMITMENTS AND CONTINGENCIES

General

The Company follows ASC 450, Accounting for Contingencies, in determining its accruals and disclosures with respect to loss contingencies. Accordingly, estimated losses from loss contingencies are accrued by a charge to income when information available prior to issuance of the financial statements indicates that it is probable that a liability could be been incurred and the amount of the loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. If a loss contingency is not probable or reasonably estimable, disclosure of the loss contingency is made in the financial statements when it is at least reasonably possible that a material loss could be incurred. The Company has not accounted for any loss contingencies as of December 31, 2012 and 2011.

Lease obligations

The Company leases office space that has a remaining term of nine years. Also as a condition of being the holder of the land use rights for its hog farms, the Company makes rental payments to the government over the term of the land use rights, which range from 19 years to 50 years. The Company does not have capital leases. In most cases, management expects that, in the normal course of business, leases will be renewed or replaced. Net rental expense relating to the Company’s operating leases for the years ended December 31, 2012 and 2011 was $84,516 and $86,721, respectively.

The following table sets forth the aggregate minimum future annual rental commitments at December 31, 2012 under all non-cancelable leases for years ending December 31:

	Operating Leases
2013	$	82,790
2014	$	82,790
2015	$	82,790
2016	$	82,790
2017	$	82,790
Thereafter	$	1,595,259

F-29

TIANLI AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 24—COMMITMENTS AND CONTINGENCIES (CONTINUED)

Capital commitments

	December 31,
	2012		2011
Capital commitments – contracted but not provided for:
Construction of buildings - within one year	$	-	$	533,480

Capital expenditures

The Company has been actively pursuing the acquisition of additional hog farms and upgrading its existing farms. As of December 31, 2011, the Company had deposited $750,992, included in construction in progress, for building a new feed processing facility, new refrigerator, and the improvements of several of the Company’s hog farms. The construction for the new feed processing facility was finished in the fourth quarter of 2012.

The Company’s execution of the Enshi Black Hog program will require the Company to incur various costs and contribute various amounts to cover the costs of different aspects of the program as more fully described above. As of December 31, 2012 and 2011, the Company provided funds totaling $10.54 million and $4.27 million to local independent farmers to construct small-scale hog farms in which the farmers will grow the black hogs for sale to the Company. Upon satisfactory completion of these farms, these farms would become fixed assets of the Company. The Company expects that further funding for this program will be required later this year, and management believes that such funds will be available out of the cash flow generated by operations.

Environmental matters

Environmental laws and regulations to which the Company is subject mandate additional concerns and requirements of the Company. Failure to comply with applicable laws, regulations and permits can result in injunctive actions, damages and civil and criminal penalties. The laws and regulations applicable to the Company's activities change frequently and it is not possible to predict the potential impact on the Company from any such future changes.

Although management believes that the Company is in material compliance with the statutes, laws, rules and regulations of every jurisdiction in which it operates, no assurance can be given that the Company’s compliance with the applicable statutes, laws, rules and regulations will not be challenged by governing authorities or private parties, or that such challenges will not lead to material adverse effects on the Company’s financial position, results of operations, or cash flows.

The Company is not involved in any legal matters. While incapable of estimation, in the opinion of the management, the individual regulatory and legal matters in which it might be involved in the future are not expected to have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

NOTE 25—SUBSEQUENT EVENTS

On February 6, 2013, we received a letter from The NASDAQ Stock Market notifying us that the minimum bid price of our common shares was below $1.00 per share for 30 consecutive business days and that we were therefore not in compliance with Marketplace Rule 5450(a)(1). In accordance with Marketplace Rule 5810(c)(3)(A), we can regain compliance if the closing bid price of our common shares meet or exceeds $1.00 per share for at least 10 consecutive days by August 5, 2013.

If the Company does not regain compliance by August 5, 2013, NASDAQ will provide written notification to the Company that the Company's common shares are subject to delisting we are evaluating available options to resolve the deficiency and regain compliance with the Minimum Bid Price Rule.

On March 8, 2013, the Company entered into an agreement with XMRJ LLP supplementing the capital injection agreement on November 5, 2012. According to the supplementary agreement, XMRJ LLP will make the balance of the agreed upon capital contribution of RMB 3,333,300 or approximately $550,000, into Tianzhili within six months after the first capital contribution was made. Additionally, XMRJ LLP will make the long-term interest free loan of RMB 5,000,000 (or $800,000) committed to in the loan commitment agreement at such time in the second half of 2013 as Tianzhili’s operations require.

F-30

Attached files

RENMIN TIANLI GROUP, INC. Reports

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